Despite quite a few catastrophes, reinsurance rates in the Indian market have remained stable. In contrast, global rates have softened.
There were expectations that rates through treaty reinsurance would harden with losses in catastrophes like the fire in Indian Oil Corporation’s (IOC) storage depot in Jaipur, a bridge collapse in Kota, Rajasthan, and floods in Andhra Pradesh.
In addition, it was speculated that large earthquakes in Chile and the windstorm Xynthia in Europe in the first quarter (January-March) would raise global reinsurance rates.
In contrast, the rates fell in some cases, as investment income of re-insurers improved and capacity remained abundant, according to industry sources.
“There was a softer trend in the reinsurance market this year. In fact, for us, the rates were a little lesser than last year, by almost 5-10 per cent,” said M Ramadoss, chairman and managing director, New India Assurance Company.
A treaty reinsurance agreement applies to reinsurance of some class or classes of business, in contrast to a reinsurance agreement, which covers an individual risk. Companies like Munich Re, Swiss Re and General Insurance Corporation are major global reinsurers.
Global softening
Reinsurance rates across most lines of property catastrophe business around the world continued the decline in April, mainly on account of healthy balance sheets of reinsurers, according to a news released by Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist
Markets such as the US and Japan saw rates declining as on April 1, as capacity continued to be plentiful, the report said. In Latin America, too, the Chilean earthquake only modestly affected rates, though pricing varied from country to country.
In the first quarter of 2010, Munich Re achieved a consolidated profit of €485m (same period last year: €437m). Large gains from disposal of investments were the basis for the good quarterly result, whereas the natural catastrophe burden was unusually high, according to a press release by the company.
“We have been able to maintain treaties at the same rate as last year, as there has not been any hardening in global rates,” said G Srinivasan, CMD of United India Insurance Company.
“The rates have been more or less the same as last year, but some underwriting conditions have been imposed,” said an executive of Oriental Insurance Company.
Proportional treaties
However, capacity for proportional treaties in the Indian market has come down. In proportional treaties, the reinsurer shares losses in the same proportion as it shares premium and policy amounts. On the other hand, in non-proportional treaties, the reinsurer makes payments to an insurer whose losses exceed a predetermined retention level.
“In proportional treaties the capacity is less. GIC was a major player in proportional treaties, but it has introduced many conditions. On an average, the commissions have also come down,” said an executive of a private non-life insurance company.
A ceding commission is paid to the insurer to compensate for the costs of writing and administering the business, such as agents’ commissions.
According to industry sources, the commission has come down by 5-10 per cent to about 25-30 per cent in the past year.
Also, in the coming months, the premium on aviation reinsurance may go up, with many of these due for renewal in July, in view of the rising number of accidents last year, according to a private sector insurer.
